In an interview with ETMarkets, Mehta said: “There has been a marginal uptick in valuations of the Nifty with the recent rally. The Nifty was trading around the 17-18x range in December 2022 and currently is at the 18-19x range” Edited excerpts:
Sensex hit record highs while Nifty was above 19500 levels. How do you see the Indian market performing for the rest of 2023?
We have been cautious on equity markets, primarily because of the high valuations. Valuations have moderated, but they continue to remain at elevated levels.
We expect equity returns to be modest as earnings growth will get eaten away by moderation in valuations. 2H2023 will be driven by how earnings are panning out. Rising interest rates remain a challenge.
Falling rates were beneficial as they pushed up valuations, and now the reverse is playing out. In that context, if the US Fed continues to raise rates, raising the cost of capital then valuations will continue to get moderated.
Do you see FOMO in Indian markets or in any sector?
There will always be a stock or a sector, in all market conditions, which gets re-rated due to too much money chasing it. So, there will always be pockets of the markets that can be termed as going through a ‘FOMO’ phase.
Let’s talk about valuations. How is Nifty placed at its peak compared to what we saw in December 2022 peak?
There has been a marginal uptick in valuations of the Nifty with the recent rally. The Nifty was trading around the 17-18x range in December 2022 and currently is at the 18-19x range.
Interest rates will play a crucial role in charting the direction of global equity markets, but India has an edge (macro growth story). How is the FII story likely to play out?
FII’s have been investing in India, incrementally more than other emerging markets, reflective of the domestic growth story. This is something likely to continue. Barring exogenous shocks, FII flows are likely to remain healthy.
When everything seems to be flying – are there any contra-buy opportunities in the market?
In any market there will always be companies that are valued lower than peers on a relative basis. Sometimes the differential is unjustified especially if there aren’t concerns about governance, the balance sheet, or growth prospects. Earnings will indeed be tracked and if global growth slows do you see impacting India Inc. in the forthcoming quarters, especially the export-focused companies?
Global growth slowing will impact us undoubtedly. There are many sectors and companies which derive a significant portion of their business from overseas markets such as textiles, IT, light engineering, etc. the current lower growth expectations of ~6% GDP for FY24 is reflective of the weakness in the global growth environment.
What is your take on OMCs? Most of them hit fresh 52-week highs earlier in July.
OMCs have been rallying on the back of lower global oil prices and stability in retail prices domestically. This differential has helped the OMCs to increase their profit margin and help recover the losses made last year when oil prices sharply rose and domestic prices were not increased commensurately.
The increased profitability will help these companies pare down the debt they took to fund the losses of last year and help clean up the balance sheet.
We expect the profit margins to normalise going forward as retail prices are likely to be reduced, especially as oil prices have been subdued for quite some time.
Lessons from H12023 that investors could put it to good use in 2H2023?
In investing the lessons remain the same every time, be disciplined in your investments, invest for the long term and always do your research beforehand.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)